Building BRICS of growth

Regional trade deals might be regarded as symptomatic of a fragmentation of the global system, rather than, as the European Union hopes, stepping-stones to a freer trading system. For the EU and the United States to declare that their standards could become global standards runs the risk of antagonising emerging economies – China, for instance, has expressed concern that the TTIP is a form of protectionism.

The potential costs of such antagonism are growing, not least because the balance of economic power is changing: ‘South-South’ exports – between the economies of Africa, Latin America and Asia (excluding Russia) – are now greater than the South’s exports to the developed economies of the ‘North’.

The traditional response of the EU and the US is to say that free trade is an open club. The US has invited China to join the trans-Pacific partnership; the EU says that an embryonic investment agreement with China could open the way to a free-trade deal. The EU has given each of the other BRIC countries – Brazil, Russia, and India – the status of a ‘strategic partner’ and the chance of freer trade.

The responses from the BRICs have varied. The EU’s trade with Russia, its third-largest partner, is managed only by rolling over every year a baggy political and economic ‘partnership and co-operation agreement’ that had been scheduled to expire in 2007. Russia has expended more effort inching towards the WTO, which it joined in 2012 after 19 years of trying, and on bilateral trade disputes with the EU, some of which are now referred to the WTO. At the same time, Russia appears to be making its most concerted attempt in two decades of efforts to integrate the former Soviet markets. Its success in dissuading Ukraine and Armenia from completing trade deals with the EU that merely required signing shows that President Vladimir Putin is willing to expend a great deal of political capital on bulking out the Eurasian Customs Union – its only members are Russia, Belarus and Kazakhstan – but whether the investment will produce returns in practice is questionable. In the meantime, Russia remains, as an industry leader says, a complex and unpredictable market that can change overnight.

Eastern frustrations

India and the EU have been negotiating a free-trade agreement since 2007 – and the wait will continue, because of India’s parliamentary election this year. That will frustrate European businesses that see a populous, quirky market – currently the eighth-biggest for the EU – of potentially vast value, if access to it were only easier. According to Spirits Europe, which has been fighting one of the most contentious EU-India trade disputes, India is the world’s largest whisky market, but just 1% of its consumption comes from Scottish, Irish and other European producers.

By contrast, there are signs of movement with Brazil, which is pushing Mercosur slowly towards a deal with the EU, despite its own numerous issues with the EU.

As for China, the EU’s argument is that it wants China to be a member of the rules-based club. The issue in the EU’s disputes with China “is about whether or not they [the Chinese] have to respect a certain number of disciplines, a certain number of rules and conventions that add up to fair competition,” Karel De Gucht, the European commissioner for trade, told a European Voice event last May. In practice, the EU’s approach includes a defence of European products from cut-price products, pressure on China to reduce subsidies to industry, and a push for an agreement on protections for European investors.

The EU’s relations with a second rank of large emerging economies behind the BRICs are even more varied. Mexico is free-trading; talks with Indonesia are stuck; Turkey is in a customs union with the EU; Nigeria and South Africa have agreements with the EU, but the EU wants them to be more ambitious.

The emerging markets may be powerful, but they are evidently not a united bloc. They constitute a complex challenge, requiring the EU to spend time on more than agreeing trade-offs. When are government subsidies – common everywhere – unfair? When does domestic industrial policy make trade unfair? These were subsidiary questions last year in the EU’s anti-dumping case against China’s solar-panel producers – and add to the importance of De Gucht’s still unapproved overhaul of the EU’s trade-defence mechanisms. They also show why, for the EU, it is important to be seen to be maintaining support for multilateral institutions: the WTO may have struggled to free up trade, but it does rule all the time on the limits of unfree trade.